TTX outlook calls for slow U.S. economy

Wednesday, January 02, 2013

The growth of the U.S. container industry will be modest this year as the U.S. economy, led by consumer demand, continues to sputter at a weak pace, according to a forecast by TTX Co., the largest provider of railcars and fleet management services in North America.
U.S. Gross Domestic Product, the broadest measure of goods and services produced, is expected to be about 1.8 percent, Peter Wolff, director of market development, said at the Council of Supply Chain Management Professionals' annual conference in the fall. He confirmed in an e-mail last week that the company's outlook has not changed and that it is assuming a weak first quarter due to the uncompleted federal budget negotiations.
On Sunday night, Congress passed a last-second compromise bill that narrowly prevented the country from going over the so-called "Fiscal Cliff." The House voted 257-157 to extend Bush-era tax cuts for those making under $450,000 per year, delay automatic spending cuts for two months, extend unemployment benefits and address other expiring tax provisions. The flurry of action staves off what many predicted would have been a severe blow to the economy, but does not end the nation's financial pressure. Congress and the White House must find $1.3 trillion in spending cuts over 10 years within two months to avoid automatic, across-the-board cuts and Congress must vote on whether to raise the nation's debt ceiling, disagreement over which resulted in the sequestration agreement that led to the fiscal drama in Washington in recent weeks.
In the third quarter, the U.S. economy grew 3.1 percent after increasing 1.3 percent in the second quarter. The U.S. Commerce Department has not released fourth-quarter data yet.
TTX, which operates as a cooperative, closely follows macro-economic and supply chain trends to get a handle on how much rail equipment to buy for the use of its shareholders, the Class I railroads.
Imports of containers will increase 3.7 percent in 2013 and 4.3 percent in 2014, according to TTX's forecast. Wolff, as analysts such as Scudder Smith of Parsons Brinckerhoff have noted in the past, said double-digit growth of containers will be difficult to replicate because the vast majority of outsourcing by U.S. manufacturers has already occurred. That means container growth is tied to national productivity and consumer spending.
TTX's forecast is within the consensus range of other analysts.
Consumer spending is expected to be tepid through 2014, and possibly beyond, Wolff said. TTX, based on data from the U.S. Bureau of Economic Analysis and Moody's, projects consumer spending to grow 2.1 percent this year and 2.9 percent next year.
Consumer spending has fallen the past two months, after rising in late summer and early fall, as people worried about the impact on their pocketbooks from tax hikes and spending cuts because of the gridlock in Washington.
Housing is a major driver of container shipments as consumers look for furnishings and materials to upgrade their homes. Housing starts will reach 800,000 this year, compared to 700,000 last year, and 1.1 million in 2014, when construction of multi-family units will lead the way, according to TTX's analysis. The normal activity in a strong economy is about 1.6 million starts.
A rough rule of thumb is that for every 100,000 jump in housing starts, container volume increases by 1 to 2 percent.
The unemployment rate has fallen to 7.7 percent, but more than 4.5 million people are still out of work since the recession hit and economists say a full recovery won't be possible until job growth picks up substantially from about 120,000 per month. Even then, the unemployment figure could worsen as more people who gave up looking for jobs reenter the labor market. - Eric Kulisch